Illinois Public Pension Fund Administration. Pension Benefits Administration

Transcription

1 Pension Benefits Administration Allison R. Barrett Partner, Pension Benefits Lauterbach & Amen, LLP 27W457 Warrenville, RD Warrenville, IL (630) Copyright Illinois Public Pension Fund Association 1 Objectives Calculation of benefits Taxation of and tax reporting of benefits Contribution deductions Transfers / combinations of creditable service QILDROS Copyright Illinois Public Pension Fund Association 2 Calculation of Pension Benefits Formula Pension benefit is a % of pensionable salary The % is driven by length of creditable service Information needed Pensionable salary Annualized base salary attached to rank, plus longevity and any other pensionable earnings Varies by pension fund IDOI can verify Length of creditable service Exclude felony conviction, LOA over 30 days in one year Include paid transfers of service, repurchased disability or military breaks Copyright Illinois Public Pension Fund Association 3

2 Calculation of Pension Benefits Other items to keep in mind Effective date of pension (deferred?) Police receives creditable service credit by number of full years completed, Fire by full years and months completed Did the member remit contributions on an after-tax basis (effects 1099R reporting) Copyright Illinois Public Pension Fund Association 4 Calculation of Pension Benefits Benefit calculator available on IDOI webpage: Old version error-prone Monthly minimums Fire $1, (as of 07/01/08) Police $1, (as of 01/01/01) Copyright Illinois Public Pension Fund Association 5 Calculation of Pension Benefits Retirement Age 50, 20 years of service Fire: age 60, 10 years of service Police: age 60, 8 years of service Non-duty disability 50% of pensionable salary No age requirement Fire must have 7 years of service (no minimum for Police) Duty Disability / Occupational Disease Disability Greater of 65% of salary or the eligible retirement benefit No age requirement (unless eligible for over 65%) Only service requirement is for Occupational Disease Disability (5 years) Dependent benefit paid for Fire only Under 18 or legally disabled $20 month to begin 3% increases every January regardless of member increases Copyright Illinois Public Pension Fund Association 6

3 Retirement Pension Increases When is initial increase? Latter of month after attain age 55 or month after anniversary date of retirement Example: DOB 01/08/55 DOR 08/17/06 55 on 01/08/10 Anniversary of retirement 08/17/07 First increase due 02/01/10 How much is initial increase? 1/12 of 3% of the original monthly pension for each full month that has elapsed since the pension began Example (above) (1/12) x (.03) x (original monthly pension) x 41 months 10.25% initial increase Copyright Illinois Public Pension Fund Association 7 Retirement Pension Increases When are subsequent increases? Every January 1st How much are subsequent increases? 3% of the current monthly pension Copyright Illinois Public Pension Fund Association 8 Disability Pension Increases When is initial increase? January 1 after attain age 60 Example: DOB 01/08/55 Disability pension begins 08/17/90 60 on 01/08/15 First increase due 01/01/16 How much is initial increase? 3% of the original monthly pension for each full year that has elapsed since the pension began Example (above) (.03) x (original monthly pension) x 25 years 75% initial increase Copyright Illinois Public Pension Fund Association 9

4 Disability Pension Increases When are subsequent increases? Every January 1st How much are subsequent increases? 3% of the original monthly pension Copyright Illinois Public Pension Fund Association 10 Pension Benefit Increases Spouses do not receive annual increases Confirmed by IL Supreme Court in January 2009 Payment of benefits should be paid at the end of the period in which they are earned Copyright Illinois Public Pension Fund Association 11 Converting a Disability Pension Eligibility 50 years old 20 years of service (combined) Salary to use DOH Length of active service Taxability Confirmation of calculation by IDOI Copyright Illinois Public Pension Fund Association 12

5 Disability Buy Backs Up to 3 years of time on disability pension Return for at least as long as time being purchased Cost to member Contributions Interest at 6% compounded from date of scheduled deduction to date of payment Copyright Illinois Public Pension Fund Association 13 Buy Backs - Military Service After Up to 5 years of time 40 ILCS 5/3-110(b) or 40 ILCS 5/4-108(c) Cost to member Contributions No interest Copyright Illinois Public Pension Fund Association 14 Buy Backs - Military Service Before Public Act Fire only Up to 24 months of service Cost to member Member contributions % rate in effect at time of hire Starting salary Employer portion IDOI tax levy information Interest Extremely cost prohibitive Copyright Illinois Public Pension Fund Association 15

6 Taxation of Pension Benefits Taxable Retirement Non-duty disability Duty/Occupational Disease disability over 65% Non-taxable 65% Duty/Occupational Disease disability Survivor benefit resulting from line-of-duty death Do NOT issue a 1099R form, per IRS Survivor benefit Taxability of original pension transfers to survivor benefit Copyright Illinois Public Pension Fund Association 16 Taxation of Pension Benefits Illinois Article 3 and Article 4 pensions are liable for Federal withholding tax. They are not liable to the State of Illinois, or for Medicare or Social Security taxes. Pension Funds should not withhold IL SIT, Medicare, or Social Security tax from the pension. You may withhold other state income taxes but you are not required to. Copyright Illinois Public Pension Fund Association 17 Taxation of Pension Benefits IRS Notice 98-2 Simplified Method Effective January 1, 1998 Pension Fund MUST report taxability of pension benefit on 1099R form After-tax contributions Credit against gross pension Spread out over expected life of pensioner/spouse Copyright Illinois Public Pension Fund Association 18

7 Tax Reporting SS-4 Application for Employer Identification Number Why do you need your own EIN? Complete and submit on-line ( W-4P form Completed by pensioners to indicate marital status and number of exemptions claimed Used by pension fund to determine amount of federal tax to withhold (using IRS tax tables found in IRS Publication 15 / Circular E ) Copyright Illinois Public Pension Fund Association 19 Tax Reporting Form 945 Filed annually with the IRS by Pension Fund by mid-february Reconciles your monthly 945 tax payments Amounts received and dates received Must balance to your 1099Rs Form 1099R (the W-2 for pension benefits) Send to all pensioners (with a taxable pension) and to all recipients of contribution refunds Send Payee copies by January 31 and IRS copies by February 28 Remember to report the taxability of the pension benefit if it began after January 1, 1998! Copyright Illinois Public Pension Fund Association 20 Tax Reporting Form 1099MISC Most overlooked form Send to vendors: All legal services All medical services All other vendors Who are not incorporated AND To whom you remitted $600 or more during the year Form 1096 Cover form for 1099R and 1099MISC Send to IRS in February with IRS copies of 1099R and 1099MISC forms Copyright Illinois Public Pension Fund Association 21

8 Contributions Withhold only from pensionable earnings Rates Fire January % January % August 6, % July 1, % Police July 1, % July 23, % July 20, % July 17, % July 1, % July 1, % July 1, % January 1, % Copyright Illinois Public Pension Fund Association 22 Employer Pick-Up Plan a.k.a. pre-tax contributions Municipal ordinance passed No members are excluded Irrevocable Record keeping (keep track of after-tax balance for tax reporting on 1099R or for contribution refund) Copyright Illinois Public Pension Fund Association 23 Contribution Refunds After-tax contributions Not subject to roll-over Not subject to federal tax withholding Pre-tax contributions Roll-over To another Qualified Plan Must be Trustee to Trustee to avoid tax penalty Cash payout to member Mandatory 20% federal tax withholding from payment Additional tax penalty on member s 1040 form IRS Special Tax Notice is required to be sent to member 1099R issued for all contribution refunds Copyright Illinois Public Pension Fund Association 24

9 Transfer of Creditable Service Portability (Police only) moves service time Requirements Must have at least 2 years of service with Prior Fund if worked for Prior Fund after 08/17/97 Must transfer 100% of service time Calculation Member reinstates service with Prior Fund (6% interest) Prior Fund sends to New Fund Member contributions Interest on contributions (6% from date of each payroll deduction to date of transfer) Match of member contributions and interest Current Fund required to do True Cost calculation Certified Actuary (or IDOI) If True Cost amount is greater than amount coming from Prior Fund, Member must pay the difference (5 year window) If True Cost amount is less than amount coming from Prior Fund, Current Fund keeps the excess money Extremely cost prohibitive Member only receives credit for transferred time when all payments are made Copyright Illinois Public Pension Fund Association 25 Transfer of Creditable Service Reciprocity (Fire only) combines service time Requirements Must have at least 1 year of service with Prior Fund Must have at least 3 years of service with Final Fund Combined total service of 20 years, age 50 If hired after 07/01/04, you have 21 months to notify all funds in writing Cost to Member Member reinstates service with Prior Fund (6% interest) Additional 1% due to all funds Use salary as of first day of fiscal year Interest due on service time prior to Declaration Date If after Declaration Date, fund can just withhold an additional 1% from payroll (10.455%) Copyright Illinois Public Pension Fund Association 26 Transfer of Creditable Service Reciprocity continued Pension Benefit Retirement Prior Funds = 1/12 of 2.5 % of final monthly salary for each month of service in that fund Final Fund = calculate pension as if ALL service was spent with Final Fund and subtract amounts paid by Prior Funds Retirement benefit cannot be remitted from ANY fund until ALL funds are paid in full Multiple 1099R forms received Duty disability or Non-duty Disability paid 100% by Current Fund Occupational Disease Disability each fund pays a prorated share based upon length of service Can be cost prohibitive Copyright Illinois Public Pension Fund Association 27

10 QUILDRO Qualified Illinois Domestic Relations Order Effective July 1, 2006 Only applicable against contribution refund or a retirement pension 3 pieces, all of which must be filed in court (available on IDOI webpage) Order Consent Calculation Responsibility of attorneys to complete Pension Fund may receive subpoena for information Should be approved by Board attorney before processing Taxes Pensioner and Alternate Payee (ex-spouse) pay tax only on their portion Each receives a 1099R Ceases when pensioner dies (not applicable to survivor pension) Alternate payee must keep Board advised of location Copyright Illinois Public Pension Fund Association 28 Conclusion Calculation of Benefits Taxation of and tax reporting of benefits Contribution deductions Transfers / combinations of creditable service QILDROS Copyright Illinois Public Pension Fund Association 29